The Malaysian Government first announced that the nation will enter the first phase of a Full Movement Control Order (“FMCO”) from 1st June 2021 to 14th June 2021. This was further extended for another two weeks from 15th June 2021 to 28th June 2021. Recently, it was announced that this nationwide lockdown under the National Recovery Plan (“NRP”) scheduled to end on 28th June 2021 will be extended indefinitely until the threshold value for Covid-19 cases falls below 4,000 cases a day.
Save for essential services, many businesses are now faced with yet further disruption to their services and in some cases, forced cessation of operations. How will this extended lockdown impact the ability of local businesses in meeting their contractual obligations and commercial commitments?
Extension of the Covid-19 Act
On 23rd October 2020, Parliament brought into force the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (known as the “Covid-19 Act”).
One of the key provisions under Part II of the Covid-19 Act was to provide relief for the inability to perform contractual obligations from the period of 18th March 2020 until 31st December 2020. This contractual relief was extended up to 31st March 2021 and subsequently, extended up to 30th June 2021. Recently, the Prime Minister announced in his PEMERKASA+ aid package speech that this contractual relief under the Covid-19 Act will be further extended until 31st December 2021 (the extension order has since been gazetted on 30th June 2021).
Inability to Perform Contractual Obligation
This contractual relief is provided for in Section 7 of the Covid-19 Act, which reads:
“The inability of any party or parties to perform any contractual obligation arising from any of the categories of contracts specified in the Schedule to this Part due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 [Act 342] to control or prevent the spread of COVID-19 shall not give rise to the other party or parties exercising his or their rights under the contract.”
This means that there is relief for any party or parties who are unable to perform any contractual obligation due to measures taken to curb the spread of Covid-19. It should be noted that this contractual relief only applies where such inability to perform is “due to measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988” (“PCID Act”).
Categories of Contracts Afforded with Protection
The Schedule under Part II of the Covid-19 Act lists the categories of contracts in which the relief under Section 7 applies:
- Construction work contract or construction consultancy contract and any other contract related to the supply of construction material, equipment or workers in connection with a construction contract.
- Performance bond or equivalent that is granted pursuant to a construction contract or supply contract.
- Professional services contract.
- Lease or tenancy of non-residential immovable property.
- Event contract for the provision of any venue, accommodation, amenity, transport, entertainment, catering or other goods or services including, for any business meeting, incentive travel, conference, exhibition, sales event, concert, show, wedding, party or other social gathering or sporting event, for the participants, attendees, guests, patrons or spectators of such gathering or event.
- Contract by a tourism enterprise as defined under the Tourism Industry Act 1992 [Act 482] and a contract for the promotion of tourism in Malaysia.
- Religious pilgrimage-related contract.
With effect from 1st January 2021, the Government amended this Schedule to include two further types of contracts:
- Hire-purchase agreement as defined under Hire-Purchase Act 1967 [Act 212] or leasing contract, that has been entered into by micro enterprises, B40 or M40 class of persons as specified in the Inland Revenue Board of Malaysia database, as the case may be, which includes motor vehicles, goods or public service vehicles, and tourism vehicles.
- Credit sales contract under the Consumer Protection Act 1999 [Act 599].
Limited Applicability of Section 7
As stated above, while the Covid-19 Act only came into force on 23rd October 2020, it has retrospective effect beginning from 18th March 2020. This is subject to the saving provision in Section 10 of the Covid-19 Act which reads:
“Notwithstanding section 7, any contract terminated, any deposit or performance bond forfeited, any damages received, any legal proceedings, arbitration or mediation commenced, any judgment or award granted and any execution carried out for the period from 18 March 2020 until the date of publication of this Act shall be deemed to have been validly terminated, forfeited, received, commenced, granted or carried out.”
In a recent High Court decision, Ang Pi Kui v Lee Wee Teck & Anor  MLJU 102, we saw the impact that this saving provision can have. The Plaintiff in this case argued that the Covid-19 Act did not allow for the termination of his three-year tenancy agreement for his business premises (which was set to expire on 31st August 2020). The court held that the Covid-19 Act was inapplicable due to the saving provision in Section 10 and that the tenancy agreement was validly terminated on 31st August 2020 as no prior written notice for extension under the terms of the tenancy agreement was provided by the tenant.
Aside from the saving provision, the open-ended wording of Section 7 leaves its scope and applicability in much uncertainty.
As mentioned above, the contractual relief applies where inability to perform is due to measures prescribed, made or taken under the PCID Act. It is unclear whether such inability to perform must be directly or even solely attributable to such measures taken. Further, this focuses on local measures taken to curb the spread of Covid-19 but is silent on how this applies in cases involving multinational level procurement or supply chain contracts, for example, if a Malaysian party’s inability to perform was due to a lockdown imposed on a factory in China. The challenge for affected parties would be to pinpoint a local source of such disruption.
Dispute Resolution – Mediation
Section 9 of the Covid-19 Act provides for a mediation process to resolve disputes on the inability of a party to perform their contractual obligations. It should be noted that this mediation process is merely voluntary and parties are not compelled to mediate in any event.
It was further stated in the Prime Minister’s PEMERKASA+ speech that mediation services at the Covid-19 Mediation Centre will be provided without charge to all individuals and businesses, regardless of their background.
It should be noted that the Advocates Association of Sarawak has been appointed as a Mediation Services Provider in Sarawak starting from 16th November 2020 until 15th November 2021. More information on the eligibility criteria and application process can be found on the Government’s website: http://www.pmc19.gov.my
In practice, we have seen very little practical application of the contractual relief provided under the Covid-19 Act, and as at the time of writing, there are no reported cases where Section 7 of the Covid-19 Act has been successfully invoked.
Despite the Malaysian Government recently deciding to further extend the applicability of the Covid-19 Act to 31st December 2021, it remains to be seen whether such extension will be of any great benefit. It is hoped that this extension and the financial aid announced by the Government will provide more breathing space for businesses in light of the ongoing hardships faced during this time.
Author: Shawn Zachary Tan, LL.B. (Hons) Queen Mary University of London (UK), Middle Temple.
Disclaimer: The views, thoughts and opinions expressed in the articles belong solely to the author and do not reflect the views of Loke, King, Goh & Partners. Readers of this website should contact their lawyer/attorney to obtain advice with respect to any particular legal matter. No reader, user or browser of this site should act or refrain from acting on the basis of the information on this site without first seeking legal advice from counsel in the relevant jurisdiction. LKGP Advocates shall not be held liable for any liabilities, losses and/or damages incurred, suffered and/or arising from the articles posted on this site.